West Asia conflict, energy shock to cool global trade growth: WTO outlook

New Delhi: Global trade growth is set to slow down sharply in 2026, with the ongoing war in West Asia and rising energy prices emerging as key downside risks, according to the World Trade Organization (WTO).

World merchandise trade volume growth is projected to fall to 1.9% this year from a stronger-than-expected 4.6% in 2025, before recovering to 2.6% in 2027, the WTO said in its Global Trade Outlook released on Thursday.

The report cautioned that in a downside scenario, global trade growth could slow further to 1.4% if energy prices remain elevated due to prolonged geopolitical tensions. That would mark a slowdown from 4.7% expansion in 2025—faster than global GDP growth of 2.9%—driven largely by demand for AI-related goods and resilient consumption in emerging markets.

The WTO report flagged the West Asia conflict as a key risk, noting that sustained high oil prices could shave 0.5 percentage points off merchandise trade growth in 2026.

Disruptions to oil shipments through the Strait of Hormuz—which accounts for around 20% of worldwide liquid petroleum consumption—have already pushed up crude prices, increasing costs across transport, manufacturing and agriculture.

The WTO report also pointed to a sharp disruption in maritime traffic in the region, with vessel movements through key routes declining significantly, highlighting the severity of the supply shock.

Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), a think tank, however, pointed to a key limitation: the projections are largely in volume terms.

“Global trade is ultimately measured in value, and price movements—especially in energy, technology and shipping—now play an equally important role," said Srivastava. "The absence of forward-looking value forecasts leaves policymakers with an incomplete picture and risks overlooking both emerging risks and opportunities.”

It flagged risks to fertilizer supply chains, noting that the Gulf region is a major exporter of inputs such as urea and ammonia, with about one-third of global supply passing through the Strait of Hormuz. “Disruptions to fertiliser trade could have broader implications for agricultural production and food security,” the report said.

India is among the exposed economies, with around 40% of its urea imports sourced from the Persian Gulf, making it vulnerable to supply disruptions and price volatility.

“For India, the risks are immediate—heavy reliance on Gulf fertilizers (about 40% of urea imports) and exposure to oil and shipping disruptions via the Strait of Hormuz. At the same time, India remains a bright spot in services, with rising export orders,” said Srivastava.

“The broader message is clear. Trade values may stay high, but the system behind them is becoming more fragile and increasingly shaped by geopolitics rather than economics.”

Services could face a sharper relative impact than goods due to the Middle East’s role as a global transit hub, the WTO said.

“A prolonged phase of high energy prices could slow the pace of recovery in global demand,” said Abhash Kumar, trade expert and assistant professor of economics at Delhi University. “Going forward, much will depend on how supply chains stabilise in West Asia. If disruptions continue, businesses may gradually diversify sourcing and shipping routes, although this could involve some increase in costs and adjustments in efficiency in the near term.”

Global GDP growth is projected at 2.8% in 2026, broadly in line with trade growth, signalling a weakening of the traditional relationship where trade expands faster than output.

Higher energy costs could also push inflation upward and delay monetary easing in several economies, further weighing on demand.

As per the WTO report, Asian economies are expected to remain key drivers of global trade, with export growth projected at around 3.5% in 2026. In 2025, Asia accounted for about 71% of global trade growth, supported by strong export performance and demand for technology products.

Despite the risks, the WTO said that continued strong investment in artificial intelligence-related goods could partly offset the slowdown. “AI-related demand accounted for a significant share of trade growth in 2025 and could continue to support trade flows going forward,” the report said.

India’s total exports in FY25 stood at $437.70 billion, marking a marginal increase from $437.07 billion in FY24, indicating a largely flat growth trend amid evolving global trade conditions.